State Street Will Pay $12M in Pay-to-Play Case

The Securities and Exchange Commission (SEC) said in a
release that State Street Bank and Trust Company agreed to pay $12 million to
settle charges that it conducted a pay-to-play scheme through its then-senior
vice president and a hired lobbyist to win contracts to service Ohio pension
funds.

According to the SEC, Vincent DeBaggis, who headed State
Street’s public funds group responsible for serving as custodians or
sub-custodians to public retirement funds, entered into an agreement with
Ohio’s then-deputy treasurer to make illicit cash payments and political
campaign contributions. In exchange, State Street received three lucrative
sub-custodian contracts to safeguard certain funds’ investment assets and
effect the settlement of their securities transactions.

DeBaggis agreed to settle the SEC’s charges by paying
$174,202.81 in disgorgement and prejudgment interest and a $100,000 penalty.

“Pension fund contracts cannot be obtained on the basis of
illicit political contributions and improper payoffs,” said Andrew J. Ceresney,
director of the SEC’s Enforcement Division. “DeBaggis corruptly influenced the
steering of pension fund custody contracts to State Street through bribes and
campaign donations.”

The SEC further alleges that Robert Crowe, a law firm partner
who worked as a fundraiser and lobbyist for State Street, participated in the
scheme and entered into undisclosed arrangements with the then-deputy treasurer
to make secret illegal campaign contributions to obtain and retain business
awarded to State Street.

The SEC filed a complaint against Crowe today in U.S.
District Court for the Southern District of Ohio.

“Our complaint alleges that Crowe served as a conduit for
corrupt payments from State Street to influence decisions about public pension
fund service contracts,” said David Glockner, director of the SEC’s Chicago
Regional Office. “Pay-to-play schemes are intolerable, and lobbyists and their
clients should understand that the SEC will be aggressive in holding
participants accountable.”

According to the SEC’s orders instituting the settled
administrative proceedings against State Street and DeBaggis:

DeBaggis caused State Street to enter into a purported
lobbying agreement with an immigration attorney named Mohamed Noure Alo, who
had no lobbying experience but had connections to Ohio’s then-deputy treasurer
Amer Ahmad.

The purported lobbying agreement was devised to funnel money
through Alo to Ahmad in exchange for the Ohio pension funds contracts.

From February 2010 to April 2011, State Street paid $160,000
in purported lobbying fees to Alo and a substantial portion was routed to
Ahmad.

DeBaggis understood that Alo was acting on Ahmad’s
instructions and would be sharing his purported lobbying fees with Ahmad.

DeBaggis and Crowe additionally arranged for at least $60,000
in political contributions to the Ohio treasurer’s election campaign in return
for Ahmad awarding State Street the sub-custodian contracts.

According to the SEC’s complaint against Crowe:

In March 2010, Crowe met Ahmad’s demand for campaign
contributions by illegally filtering $16,000 through his personal bank account
and reimbursing individuals for contributions made in their own names.

Crowe continued to make secret illicit campaign contributions
until at least September 2010 in response to Ahmad’s threats that State Street
would lose the business.

Ahmad and Alo have been criminally convicted for other
misconduct occurring during Ahmad’s tenure and are currently in federal prison.

State Street and DeBaggis consented to the SEC’s
orders without admitting or denying the findings that they violated Section
10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The $12 million
that State Street agreed to pay in the settlement comprises $4 million in
disgorgement and prejudgment interest and an $8 million penalty. The SEC’s
complaint against Crowe seeks disgorgement and penalties as well as injunctive
relief.